Stock Types
There are many types of stock which can be invested in, based upon your financial position, your risk comfort level, and your investment goals. In order to determine which type to invest in, your have to first determine what you want the stock to do for you. Do you plan to hold the security long-term, or are you a day trader ?
Are you looking for capital gains in your investments or is income your main objective ? How you answer these questions will give you a good idea of which type of stocks you should be considering for your portfolio.
Types of Stocks :
Blue Chip Stocks
The stock market term “blue chip” comes from poker, where the blue chips carry the highest Value. Large, established firms with a long record of profit growth, dividend payout and a reputation for quality management, products and services are referred to as Blur Chip companies. These firms are generally leaders in their industries and are considered likely candidates for long-term growth.
Because Blue Chip companies are held in such high esteem, they often set the standards by which other types of companies in their fields are measured. Well known blue chips include IBM, Coca-Cola, General Electric and McDonald’s in
The types of investors blue chips stock attract are the one who seek investments that pay moderate dividend yields and grow. These types of stock are usually priced high because of their demand, have relatively low volatility and deliver a steady stream of dividends. The main downside is that, since they are so large they have little room to appreciate, compared to smaller, up-and-coming types of stock.
Penny Stocks
Penny stocks are low-priced, speculative stocks that are very risky. These stocks are generally issued by the type of companies with a short or erratic history of revenues and earnings. They are the lowest of the low in price and many stock market exchanges choose not to trade them.
The appeal of penny stocks comes from their low price. Though the odds are against it, if the company that issued them suddenly finds itself on a growth track, their stock share price can rise rapidly. This type of tocks is popular among small speculators.
Income Stocks
Income stocks are the stocks that pay higher-than-average dividends over a sustained period. These above average dividend tend to be paid by large, established companies with stable earnings. Utilities and telephone company stocks are often classified as income stock types.
Income stocks are popular with the type of persons investing for steady income for a long time and who do not need much growth in their stock’s value (though some growth does occur). In this sense, investors who choose them have something in common with bondholders. Income stocks can actually be more profitable than bonds. To maximize income, some investors will even seek out companies that frequently raise their dividends and are not saddled with debit.
Value Stocks
A value stock is a type of stock that is currently selling at a low price. Companies that have good earnings and growth potential but whose stock prices do not reflect this are considered as value companies. Both the stock market and the people investing in it are largely ignoring their stocks. Investors who buy value stocks believe that these stocks are only temporarily out of favor and will soon experience great growth. Any number of factors such as new management, a new product, or operations that are more efficient may make a value stock grow quickly.
Many companies alter between value and growth types of classification. It is a normal aspect of the business cycle. Investing in value stocks is attractive for those who watch markets carefully for the undervalued stocks they feel will move upward.
Other Type of Stocks
Defensive Stocks
Defensive Stocks are those whose prices stay stable when the market declines and are issued by
industries that naturally do well during recessions. The stocks of food and utilities companies are defensive ones. Debit collection companies also tend to perform well when the market turns sour.
Cyclical Stocks
Cyclical stocks a type of stocks that move up or down in sync with the business cycle. Examples include the housing industry and industrial equipment companies, because these companies serve the needs of growing economics. Investors who do not, mind buying and selling, as the market fluctuates tend, to like cyclical stocks. Individuals who prefer to hold a stock for a long time may not like them unless they can weather ups and downs the stock’s value.
Gold Stocks
Gold Stocks are the stocks of gold-mining companies. Their value moves up or down with the price of gold.
Treasury Stock
Treasury stock is a type of stock that has been bought back up the company that issued it. Companies may buy their stock back from investors when they believe it is under-priced in the market. The company can then set aside the stock for future uses such as debt payment or the awarding of stock options.
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